Many people have heard of trusts as an estate planning tool, but beyond that many do not know much more. Perhaps you have heard that trusts avoid probate, which can be true. Some people are under a misconception that trusts save taxes, that may be true for the very wealthy, but for most people they don’t avoid taxes. This article will attempt to provide an overview so that you can visit intelligently with an attorney to make a specific plan for your specific circumstances.
A trust is a fiduciary arrangement for property to be managed according to the terms of a trust agreement. The definition may seem a little abstract. It can be easier to conceptualize a trust as a legal box where you place property which will be governed by rules you create. Similar to how a corporation owns property separate from the shareholder, at least in Oklahoma a trust can own property. However the better arrangement is for a trustee to hold the property in accordance with the rules you create.
Many people who create trusts have themselves either individually or along with a spouse serve as the trustees to begin. If they become incapcitated or pass away, then someone else is appointed as the successor trustee to manage the property according to the terms of the trust. Many trusts are created to manage property during the lifetimes of the people who created the trust, then upon their death the property is turned over to their children without going through the court probate process.
There are several goals that can be accomplished with a trust that might not be able to be accomplished in other ways. A major benefit is to hold property for minor children if the person who establishes the trust passes away before the children reach a certain age. Many other means of transferring property at a person’s death gives the property to the children when they reach age eighteen. Depending on the child’s maturity, education and life experiences, they could be harmed by receiving a large inheritance all at once at the age of eighteen. A trust can place someone else, or a trust company in charge of the property to make sure it is spent wisely until the child reaches a point in life they can manage the property themselves.
There are many other situations where a trust can work best as an estate planning tool. One example is a loved one who may have a drug or alcohol addiction. Turning over all the property in a trust to the addicted loved one could be potentially lethal. Instead a trust could be created where someone else is named trustee and allowed to spend money from the trust for the benefit of the addicted loved one, such as paying for their rent, utilities, health insurance and expenses of drug/alcohol rehabilitation and counseling.
Another example of a use for a trust is to establish a special needs trust for the benefit of a disabled person. If the disabled person is receiving needs based aid from the government the receipt of an amount of money may make them ineligible to receive medical and financial aid. Instead if certain rules are followed a trust can be established to pay for little extras that can improve the person’s quality of life without making them ineligible for the aid they are receiving.
Sometimes people will establish a trust to place their separate property, property they had before a marriage or inherited during the marriage to keep the property separate and potentially protect it in the event their marriage ends. Other times maybe parents will establish the trust to protect the property they are leaving to their child from their child’s spouse.
Many people establish a trust for the sole purpose of making the transfer of their property to their children as easy as it can be at their passing. A trust can avoid a probate which can take several months to complete. Instead of waiting months a trust can transfer the property relatively quickly. Additionally the trust can provide privacy, where the probate process can reveal all the decedent’s property and who they left it to and who didn’t receive anything.
A person making a trust can maintain control and even change the trust at any time after creating it if they make the trust revocable. When the trust is revocable, the person making the trust keeps the rights to change the trust and even do away with the trust. This can be very beneficial if the circumstances change.
Sometimes there can be reasons to make the trust irrevocable, which means the trust cannot be changed by the person creating the trust. When you make a trust irrevocable you need to have a good reason and be very certain before you give up the control of the property.
Creating a trust to manage property you want to create an income stream for a charity can be another good use of trusts. The donor can create rules to be followed and if the charity changes later to no longer follow the same vision the donor has for their gifts, then another charity can be substituted to receive the funds and carry out the vision of the donor.
These are a sample of different uses for trusts in estate planning. With some limitations by the law, a trust may only be limited by the creator’s imagination and desires.
Having a general idea of what you want to happen to your property and who you want to receive benefits is a good starting place to begin a conversation with an attorney to plan what you want to accomplish and the best tools to meet your goals. Willhoite Law, PLLC is a law firm with many years of experience creating custom trusts for people throughout Oklahoma. When you are ready to proceed further with estate planning you can call them at (918) 341-3101 to schedule an appointment.